The Financial Industry Regulatory Authority (FINRA) recently released a report detailing the American public’s susceptibility to financial fraud. The Financial Fraud Research Center estimated that fraud costs the American people over $50 billion a year without including the cost of efforts to prevent and prosecute fraud.
The report entitled, Financial Fraud and Fraud Susceptibility in the United States made two summary claims. The first claim is that ever present fraud solicitations coupled with the inability of people to recognize the signs of fraud place a large number of Americans at risk, especially older Americans. Second, policy maker’s inability to obtain an accurate measure of financial fraud frustrates our understanding of its prevalence and our ability to prevent fraud.
The study highlighted that many Americans cannot identify classic “red flags” of fraud. For instance, the study cited that many Americans lack an understanding of what a reasonable rate of return on a investment would be. The study found that over 4 in 10 people participating in the study found promises of a annual return of 110% or a “fully guaranteed” investment appealing. Participants found such promises appealing even though returns of over 100% are highly improbable and virtually no investment is guaranteed. This lack of understanding leaves many Americans susceptible to fraudulent sales pitches. The study also found that older Americans, age 65 and older, are more likely to be targeted by fraudsters and 34% more likely to lose money than people in their forties.
The FINRA study also highlighted that fraud susceptibility is not limited to specific demographics or psychographic segments of society and is instead a pervasive phenomenon that affects all strata of society. While the study suggested that some correlations do exist between income, personality, gender, and one’s willingness to take investment risks these factors were largely overshadowed in importance when compared to the inability to recognize the signs of fraud. The study speculated that due to the ability to reach millions of potential victims quickly through the internet and the correspondingly low cost for entry to start a fraudulent investment enterprise fraudsters can prey upon people’s lack of financial sophistication.
FINRA’s study found that more than 8 in 10 people are likely to be solicited to participate in a fraudulent scheme at some point. In addition, at least 16% of all people participating in the study invested money in response to a likely fraudulent offer. Further, 11% of people lost a significant amount of money after participating in the solicited offering. FINRA suggested that effective fraud prevention must be broad in scope and involve fighting both fraud at its sources and equipping all citizens with the capability to recognize the signs of fraud.
Although 11% reported losing money in a likely fraudulent activity only 4% admitted to being a victim of fraud when asked directly. Thus, the study found that Americans may under report being a victim of fraud by as much as 60%. When asked why the fraud victim did not report the fraud, the most cited that it “would not have made a difference” and “didn’t know where to turn.”
One place fraud victims can turn to are the attorneys at Gana Weinstein LLP. We are experienced in investigating claims of financial fraud. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.